Racial Diversity Exposure and Firm Responses Following the Murder of George Floyd

Journal of Accounting Research, Forthcoming

80 Pages Posted: 20 Mar 2023

See all articles by Karthik Balakrishnan

Karthik Balakrishnan

Rice University - Jesse H. Jones Graduate School of Business

Rafael Copat

University of Texas at Dallas

Daniela De la Parra

University of North Carolina at Chapel Hill

K. Ramesh

Rice University

Date Written: March 13, 2023

Abstract

George Floyd’s murder caused many firms to reveal how exposed they are to racial diversity issues. We examine investor and firm behaviors after this socially significant event to provide evidence on the valuation effects of the exposure and ensuing corporate responses. We develop a text-based measure of a firm’s exposure to racial diversity issues from conference call transcripts and find that, after the murder of George Floyd, firms with diversity exposure experience a stock price decrease of approximately 0.7% around the date of the conference call. We provide evidence that this effect is attributable to race-related exposure and not gender-related exposure. Initiatives taken by firms mitigate the negative market reaction. We document that firms with racial diversity exposure respond by appointing Black directors. The stock market views appointments of Black directors more favorably after George Floyd’s murder, except when they are perceived as symbolic. We also find that firms with greater exposure to racial diversity are more likely to establish DEI departments, appoint DEI leaders, specify diversity goals, increase supply chain diversity, and donate to racial justice causes. Our paper provides evidence that exposure to racial diversity issues adversely affects firm value, and companies address the exposure by taking actions.

Keywords: racial diversity, textual analysis, valuation effects, board of directors, corporate actions

JEL Classification: G14, G34, J15, M14, M40

Suggested Citation

Balakrishnan, Karthik and Copat, Rafael and De la Parra, Daniela and Ramesh, K., Racial Diversity Exposure and Firm Responses Following the Murder of George Floyd (March 13, 2023). Journal of Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4387740 or http://dx.doi.org/10.2139/ssrn.4387740

Karthik Balakrishnan

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Rafael Copat (Contact Author)

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States
(972) 883-4187 (Phone)

HOME PAGE: http://www.rafaelcopat.com/

Daniela De la Parra

University of North Carolina at Chapel Hill ( email )

300 Kenan Center Drive
Chapel Hill, NC NC 27599
United States

K. Ramesh

Rice University ( email )

236 McNair Hall
Jones Graduate School of Business
Houston, TX 77005
United States
713.348.5380 (Phone)
713.348.6296 (Fax)

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